Indonesia’s mining giants race to adapt as investors cool on coal
JAKARTA — Indonesia’s mining giants are piling into coal gasification projects as the country’s biggest export markets and global investors move toward a carbon-neutral future.
Coal gasification can be used to create a range of fuel products with lower emissions, an important consideration for investors increasingly concerned about environmental, social and corporate governance, or ESG, issues. The moves also dovetail with the Indonesian government’s push to develop the downstream industry, rather than simply exporting raw natural resources.
The Southeast Asian country is the world’s largest exporter of thermal coal, shipping out 455 million tons, or 31.7% of the world’s exports, in 2019, according to International Energy Agency.
State-owned Tambang Batubara Bukit Asam, known as PTBA, announced in December its partnership with state oil and gas company Pertamina and U.S. chemical industry company Air Products on a $2.1 billion project to convert coal into dimethyl ether (DME).
PTBA is planning to start construction of the coal-to-DME processing facility near its mine in Tanjung Enim, South Sumatra Province, in the middle of this year.
“The coal-to-DME project is one of PTBA’s main strategic initiatives in realizing [a] business transformation from being previously a conventional mining company to become a ‘beyond coal’ company,” Chief Executive Arviyan Arifin said at a virtual signing ceremony for the partnership agreement with Air Products and Pertamina on Dec. 10.
“Moreover with this project, hopefully it can be a good start to support national energy security,” Arifin said. “Hopefully our coal-to-DME project will inspire other coal companies in Indonesia to take similar action.”
Commercial operations are targeted to start in 2025, with a production capacity of 1.4 million tons of DME per year. Six million tons of coal will feed the plant every year — about a fifth of the miner’s production output in 2019.
Coal gasification involves chemically converting coal into synthesis gas with varying end products — including DME, hydrogen and methanol.
DME is a highly flammable gas and can be used as a replacement for propane in liquefied petroleum gas (LPG), and a replacement for diesel fuel in transportation. It is recognized as an environmentally friendly fuel because much less carbon dioxide and nitrogen oxides are generated when it is burned in power plants and elsewhere than coal.
Bumi Resources, Indonesia’s largest coal producer, has a different project. Its subsidiary Kaltim Prima Coal is teaming up with peer Ithaca Resources and Air Products to build a coal-to-methanol facility in East Kalimantan Province.
Air Products will invest about $2 billion “to build, own and operate” the facility that is expected to go onstream in 2024. They intend to supply the methanol to the government’s expanding biodiesel program, Air Products told Nikkei Asia last month.
Bumi is also conducting a pre-feasibility study for a second coal-to-methanol project with a target to have it onstream in 2025.
Indonesia’s other major coal company, Adaro Energy, is studying a coal gasification plan. Dharma Djojonegoro, vice president of subsidiary Adaro Power, told Nikkei Asia that it was “open to possibilities of producing methanol, olefins or others in line with market needs.” Olefins are basic materials for plastics production.
If all the projects go onstream, the ministry of energy estimates that combined they will consume around 20 million tons of coal as feedstocks annually — less than 5% of Indonesia’s coal production target last year.
Additionally, other local coal miners are preparing pilot projects for underground coal gasification — in which the conversion is done below the surface. They include Kideco Jaya Agung, Indominco and Medco Energi Mining Internasional, the ministry revealed in November.
Indonesian miners are being pushed into such projects by the global turn against coal, illustrated by the growing emphasis on ESG.
A new sense of urgency has emerged following pledges made last year by China, Japan and South Korea — Indonesia’s top coal export markets — to go carbon neutral by 2050 to 2060. The commitments by those countries add to growing ESG concerns from global investors clouding the coal industry outlook over the long term. The result has been less financing options for new coal projects.
In neighboring Australia, the world’s second-largest coal exporter after Indonesia, two big mining groups are moving away from coal. Rio Tinto sold its last coal asset in 2018 and now focuses on iron ore, aluminum and copper. Its mining rival, BHP, meanwhile, has decided to focus on higher-quality coking coal — mainly used in steelmaking — and reduce its exposure to thermal coal commonly used in power plants.